Strong rentals, sales and record utilization boost H&E 3Q revenues 5.9%
Joy Powell | October 27, 2017

H&E Equipment Services posts 5.9% revenue hike for 3Q and record utilization.

At a glance: Third-quarter revenue results:

  • New equipment sales increased 9.3 percent to $48.9 million, up from $44.8 million a year ago.
  • Used equipment sales increased 7.9 percent to $22.3 million, compared to $20.6 million a year ago.
  • Parts sales rose about 1.6 percent to $27.8 million from $27.3 million in third-quarter 2016.
  • Service revenue remained the same – $16.1 million.

Driven by strength in rental and distribution businesses, H&E Equipment Services posted third-quarter revenue up 5.9 percent to $259.2 million – an increase of $14.5 million over the same period last year.

New and used equipment sales rose, demand remains high in end-user markets, and the company is running record utilization records. Trends are favorable for 2018 with expectations for rate increases and fleet growth, the company says.

“Our rental business performed extremely well during the third quarter, capitalizing on the strong broad-based demand in the nonresidential construction markets we serve,” says CEO John Engquist.

He pointed to a 6-percent increase in equipment rental revenues to $125.6 million in the third quarter, compared to $118.5 million a year ago.

“Demand for rental equipment is strong, as evidenced by an increase of 120 basis points in time utilization to 73.3 percent, compared to 72.1 percent a year ago,” he says.

Average rental rates improved again this quarter at .3 percent compared to a year ago and 1 percent sequentially, the company reports.

“We achieved positive rates for the second consecutive quarter on both a year-over-year and sequential basis,” Engquist says.

Rental growth margins remained strong at 49.7 percent in the third quarter, compared to 49.5 percent rental growth margin last year.

Adjusted net income was $27.1 million compared to net income of $11.7 million a year ago. Adjusted EBITDA was also solid, increasing 8.1 percent to $88.5 million, compared to $81.9 million a year ago. That yielded a slightly higher margin: 34.2 percent of revenues versus 33.5 percent a year ago.

Used equipment sales increased 7.9 percent to $22.3 million in 2017’s third quarter, compared to $20.6 million a year ago, largely due to sales of used cranes and earth-moving equipment.

New equipment sales rose 9.3 percent to $48.9 million in the third quarter, compared to $44.8 million a year ago.

“The improvement in new equipment was largely due to higher new crane sales, which increased 29.6 percent, or $5.6 million, to $24.3 million,” according to Leslie Magee, chief financial officer and secretary.

Overall, however, ongoing relatively low demand for cranes has posed a challenge to the new equipment sales component of the distribution business. The company says it anticipates improvement in the crane market in 2018.

Crane utilization improved dramatically recently to 80-plus percent, says Brad Barber, president and chief operating officer. He notes, however, that the crane fleet has decreased in size by about $20 million year-over-year as the company waited to come into balance.

“We could be at the crossroads of things starting to improve consistently,” Barber said, “and that’s our hope. But that’s not something we’re going to hang our hat on just yet.”

 

Recovering from Hurricanes Harvey and Irma

H&E, based in Baton Rouge, Louisiana, weathered some immediate negative impact from the storms with a decline of 250 basis points when Harvey and Irma hit.

“Since then, our utilization has exploded, and it’s really running at the highest levels I’ve ever seen it, and I’ve been around here forever,” Engquist says, noting it’s now running at 76 to 77 percent.

“We were very fortunate with both the storms as none of our branches were flooded or significantly damaged, and only a very small amount of equipment was flooded during Harvey,” he says.

He commended H&E employees for helping customers move equipment from flood-prone areas before Harvey flooded Houston and surrounding areas.

“Given our high utilization, we’re not moving significant amounts of fleet from other branches into the affected areas of both storms – rather making some select equipment purchases for our branches in these markets to support the cleanup and rebuilding efforts,” Engquist explains.

“Long-term, there will be a tremendous amount of work that will be of net benefit to us and the entire industry, but at this point, it’s impossible to quantify.”

 

Growth strategy outlined

Nationwide, H&E has 79 branch locations and 17 greenfield (undeveloped) sites that have opened since the start of 2013, with more expansion and market services expected in the next year.

The company is focused on identifying and acquiring rental companies to complement its existing business, increase density in existing markets and expand geographically, according to Engquist.

 

End-user markets and fleets

Construction markets are strong, and the nonresidential construction markets are forecast to accelerate in 2018, Engquist says.

The nonresidential markets have been the primary driver for H&E’s business, representing 63 percent of total revenue for the past 12 months ending Sept. 30.

“Our equipment is used in a wide variety of nonresidential construction projects,” Engquist explains. “Our end-user markets are well diversified, spanning a wide range of industrial and commercial projects, including data and distribution centers, airports, infrastructure, warehouses, hospitals, schools, convention centers, mining, agriculture and numerous other projects.”

He also notes:

  • The industrial sector represented only 12 percent of the company’s revenues for the last 12 months.
  • Oil-patch activity remains solid for the third quarter, at slightly more than 5 percent of total revenues, unchanged from the second quarter but still significantly below a total exposure of 13 percent in the last peak, which was in 2014.
  • H&E’s fleet continues to be one of the industry’s youngest, with an average rental age of 34.3 months compared to an industry average of 43.4 months. That brings significant advantages in the marketplace as well as from a capital expenditure perspective.

 

Looking ahead

“To conclude, our third-quarter performance was solid and the strength in our end-user market is continuing into the fourth quarter,” Engquist says.

“We believe there is currently significant momentum in the marketplace, and the forecast calls for continued expansion in nonresidential construction into 2018. Our rental business is performing well, capitalizing on the high-demand for rental equipment. We are focused on an accelerated growth strategy combining both acquisitions and greenfields.”

 

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